Closing ‘Donut Hole’ Gives Sweet Savings to Part D Recipients

Since 2010, 8.2 million Medicare recipients have saved $11.5 billion on prescription drugs thanks to one provision of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148). By closing the “donut hole”—a gap in coverage that required beneficiaries to pay the full costs of certain drugs out of pocket—the ACA has provided an average of $1,407 in savings for each individual Part D recipient. In a press release, HHS Secretary Sylvia Burwell trumpeted this success, saying that the closure of the gap helps the agency in “improving and promoting the best care for people with Medicare.”

Donut Hole

Medicare Part D was created by the Medicare Modernization Act of 2003 (P.L. 108-173). Part D beneficiaries are entitled to lower negotiated prices on generic and brand-name prescription drugs that are (1) approved by the FDA, (2) used and sold in the United States, and (3) used for a medically-accepted reason. When Part D began in 2006, there was a $250 deductible. For costs between $251 and $2,250, beneficiaries had a 25 percent coinsurance payment. Once beneficiaries spent $3,600 out-of-pocket, they were entitled to pay the greater of either $2 for generic drugs and $5 for brand name drugs, or 5 percent of the cost of a drug.

However, for prescription drug costs between $2,251 and $5,100, beneficiaries were required to pay 100 percent of the cost of drugs—that is, when beneficiaries had purchased drugs in excess of the 25 percent coinsurance threshold, but before they had spent $3,600 out-of-pocket. This gap in coverage is referred to as the “donut hole.” Subsequently, the deductible, coverage limit, out-of-pocket threshold, and cost-sharing amounts have been annually adjusted, but the existence of the donut hole gap has remained; in 2014, the donut hole begins when a beneficiary has prescription drug costs above $2,850 and ends when the beneficiary has spent $4,550 out-of-pocket.

Closing the Donut Hole

The ACA contained provisions to gradually relieve the burden of the donut hole for Part D beneficiaries. In 2010, beneficiaries who hit the donut hole received a $250 rebate. Thereafter, beneficiaries began to receive an annually-increasing percentage discount from drug manufacturers while in the donut hole. By 2020, the ACA will have completely closed the donut hole, and beneficiaries will have a 25 percent coinsurance rate for all prescription drugs after they pay the annual deductible.


Since the ACA began closing the donut hole, CMS says “more than 8.2 million seniors and people with disabilities with Medicare have saved over $11.5 billion on prescription drugs since 2010 as a result of discounts in the donut hole and rebates in 2010, for an average of $1,407.” This represents an increase of 1.6 million individuals and $4.5 billion in savings from this time in 2013, when individuals had saved an average of $1,061. CMS also provided a savings summary breaking down donut hole discounts by state for 2014 and overall since 2010.